Credit Card Limit ... too high?

September 15, 2011 4:27 AM

I applied and got a new credit card. Fine. Then I checked the credit limit and it was way higher than expected! Normal?

I am in my mid-20s, no debt, pay off my credit card bills in full every month. I have an after-tax annual salary of ~£40 K and bonus of £10 - 20K. I have 3 credit cards with limits ranging from £1000 to 2000.

I applied for a credit card (primarily because of their low foreign transaction charges) and my credit limit is £7500! That's 3x my monthly salary! A couple of questions:

1) Is this high relative to my income? How do they determine credit limits? I ask because my three other cards have much lower limits.

2) Should I keep this or should I ask the limit to be lowered? I ALWAYS pay off my bills in full and I never carry a balance; I'm fairly controlled in my spending and my savings rates is about 40% (not even trying). The only reason why I'm asking whether I should get a lower limit is because I'm worried about credit card fraud. Should I be?

posted by moiraine to work & money (19 answers total)

If you can trust yourself not to overspend, having a higher credit limit could come in very handy in an emergency. Some credit card companies will lower your spending limit after awhile for various reasons (not paying on time, not carrying enough of a balance, etc.), but I think having the funds available for emergencies, provided you're not going to go crazy and buy a bunch of things you can't afford, is a good thing.

If fraud happens, you should be protected by the credit card company for any purchases that you didn't make. Check their policy, and make sure you always check your bills, to make sure someone isn't using your number fraudulently. Limits have nothing to do with fraud: I have a credit card/debit card thingie with a $400 limit on it that had multiple fraudulent charges on it one month for items about $20 apiece.
posted by xingcat at 4:34 AM on September 15, 2011

Sorry, just to clarify, for question 2, fraud on a £1000 card is not as bad as a £7500 card, magnitude-of-damage-wise.
posted by moiraine at 4:41 AM on September 15, 2011

1) It seems a little high for a new application, especially with Halifax, which I assume this is based on your comment about foreign transactions. On the other hand, my limit there is ~2x my monthly salary, so it's not crazy.

2) If your credit card is misused then normally the bank is on the hook for the costs, so unless you're worried about the misuser being you I wouldn't worry about that.

Unless you are uncomfortable with access to significant credit, I would keep the card. The very fact that you have access to credit improves your credit rating.
posted by caek at 4:53 AM on September 15, 2011 [1 favorite]

What caek said, and some details as to why: experts recommend keeping your debt-to-limit ratio under 30%, or even under 10% if possible.
posted by evilmomlady at 5:14 AM on September 15, 2011

Your credit score has simply gone up over time (and more significantly probably your income) and based on that they have decided by whatever metric their system uses, that you are a good customer to get.

In fact, the limits on your other cards are ridiculously low for somebody with your income and if you were to call the card providers and ask for an increase you would most likely get significant increases on those cards. Those limits are what my student bank account credit card started with 13 years ago. And they don't go very far if you travel for example - my employer asks but does not mandate use of their corporate card so I use my own and collect air miles and my weekly hotel bill and travel costs can easily come be 1k.. As anecdotal evidence - I've had Barclays give me that much on a significantly lower net income, albeit before the recession and another provider give me similar range post recession, still on lower net income.

You're at a point in life where financial service providers are knocking your door down so get used to that....the only worry would be if you cannot trust yourself not to use all this credit being thrown at you.
posted by koahiatamadl at 5:18 AM on September 15, 2011 [1 favorite]

come be = come to
posted by koahiatamadl at 5:20 AM on September 15, 2011

Meh. Just because you've got a high limit doesn't mean you have to use it. I've got a card with a limit in the $11,000 range. Haven't swiped it in about two years.

Don't worry about the fraud bit. Your cardholder agreement almost certainly contains a provision whereby you're only liable for a fixed amount, usually $50-100 in the States, if there is fraud with your card. Of course, that doesn't work if you're the one doing the fraud, but then, you know, shame on you. But if someone else runs up charges that you didn't authorize, the card issuer usually eats that and goes after the thief.
posted by valkyryn at 5:24 AM on September 15, 2011

The higher the limit the better for your utilization which equals higher credit scores. At least that's how it works in the U.S. The credit card company is responsible for fraud, whether it's $1K worth of fraud or $7.5K.
posted by doomtop at 5:58 AM on September 15, 2011

Also, in my opinion, ideally you should have about 10 times your monthly spending in available credit. This can be spread across multiple cards, it doesn't matter. This allows you to use your credit cards for all payments and gain full benefit of any credit card awards available to you, while still maintaining a sub 10% utilization. Just make sure you are paying off your cards every month.
posted by doomtop at 6:00 AM on September 15, 2011

I don't know how they calculate the exact figure of a credit limit, but I do know that the reason they gave you one that was higher than you were expecting is because you ARE so responsible. You're a good risk, so they'll give you more credit.

If you ask to have it lowered, at least in the US that could put a ding on your credit rating -- the thinking is, "wait, why does he want access to LESS money? Does he know something about himself and his habits that we DON'T?...." As for fraud, you shouldn't worry too much -- it'd be unusual for you to be on the hook for any fraud, and in fact the bank may be more on top of this than you are. Some banks actually put a hold on transactions if they look unusual and will call you to ask "did you really do this?" And if you didn't they'll cancel it. (I bought a plane ticket this summer, and an hour after I placed the order online my bank called me to ask whether that really was me that bought a round-trip airfare to London. Only when I said "yes, I did" and gave them my security information did they release my funds.)

You'll be fine. Just keep doing what you're doing in terms of your spending/repayment habits. The money's there in case you need it for an emergency, and that's good.
posted by EmpressCallipygos at 6:01 AM on September 15, 2011 [1 favorite]

You will find as you get older that the offers for from credit card companies exceed what you could rationally pay down in any reasonable amount of time, and further, if you continue to have stable employment and a decent financial track record, that these limits can get unreasonably, uncomfortably large with time. Your numbers seem approximately reasonable to me. The idea, of course, is that we'll overspend and carry a balance, preferably permanently. That's how the card companies make money, after all.

There are a few ways to handle this.

If you don't need the credit, call your card company and ask that they lower your credit limit. I've done this in the past, particularly with cards I've used for on-line transactions.

If you need the credit, but will have to carry a balance, call your issuing bank and ask them for a line of credit at a lower rate than the card. Set up an automatic payment system to move the card balance to the line of credit when payment is due. Make your payments to the line of credit.
posted by bonehead at 6:10 AM on September 15, 2011

In some areas, your credit card limit counts as debt when applying for a loan (a mortgage on a house, for example), potentially making it harder to get approved. Might be a reason to have it lowered.
posted by FrereKhan at 6:45 AM on September 15, 2011

I'd say it's not a big deal. The way credit scores are calculated in the US, a large credit limit is an advantage, and since you seem to have your finances in order the temptation to spend up to the limit doesn't become a major disadvantage.

That's not a crazy-high credit limit, especially if you're comparing to cards you've had for a few years. The existence of cards 1 & 2 establishes your credit and makes you look good when you apply for card #3. When I was in grad school (annual income $18k) I got an American Express with credit limit $13k. Interestingly, my first job almost tripled that income but didn't affect the credit limit much - I think it's $15k or so now, 10 years later. How much of this is related to loose and tighter credit expectations as the US consumer economy expands and contracts? How much of t his is because it was my third credit card and I was an established consumer? Who knows. All I know is: (1) there's no way I'm running up $15k of purchases on a credit card because I'm not an idiot, though (2) it was kind of fun to buy a used car that way, because (3) the rewards points are cool.

Your concern about the fraud is valid; if there are issues and things are going unpaid while you get the runaround from the bank about whether it was a valid charge or not, that's much more stressful the larger the numbers involved are. See if there's a security feature where you need to call and give them a password for large transactions (for example, single charge amounts over 1000 [pounds, a symbol which I don't seem to know how to type because I am a shameful American])
posted by aimedwander at 7:27 AM on September 15, 2011

In some areas, your credit card limit counts as debt when applying for a loan (a mortgage on a house, for example)

Certainly wasn't the case in the UK when I applied for my mortgage 4 years ago.
posted by koahiatamadl at 7:51 AM on September 15, 2011

The only reason why I'm asking whether I should get a lower limit is because I'm worried about credit card fraud.

In the US, the customer is only liable for the first $50 or so of credit card fraud, regardless of the total amount of money in fraudulent charges. Check with your country's local laws about this.
posted by deanc at 7:57 AM on September 15, 2011

I think that is pretty normal, or at least would be in the US. I'm in a roughly similar financial situation, and my limit has settled at between 2x and 3x my monthly take home salary (I think it would be even more if I applied for a different card, this one seems to cap the limit there).

I've actually had to deal with fraud while at this limit. They didn't come even close to hitting it before I noticed, and the MO actually seemed to be to clone the card a bunch of times and gradually spend relatively small amounts at random midwestern gas stations. I'm sure there are other varieties of fraud but this one would've happened in the same way no matter my limit. I didn't end up having to pay any of that. Also, large purchases at random locations will often trigger a fraud alert for my card, and they call me to confirm the purchase.
posted by advil at 8:58 AM on September 15, 2011

deanc wrote: In the US, the customer is only liable for the first $50 or so of credit card fraud, regardless of the total amount of money in fraudulent charges. Check with your country's local laws about this.

In the US, Visa and Mastercard credit card holders have zero liability for fraud, as the two cartels require that the issuing banks provide that benefit, despite it being in excess of what is required by federal law.
posted by wierdo at 1:17 PM on September 15, 2011

Happens all the time in Australia.

"Hello - I'd like to buy this $600 doodad on interest free terms."

"OK, we'll just sign you up for a Go / HSBC / whatever Mastercard. *type type type* OK, you've been approved for $11000. Here's your temporary card. Don't go crazy, now! Ha! Ha!"
posted by obiwanwasabi at 6:32 PM on September 15, 2011

Thank you all! I guess I was just a bit shocked because only two years ago, I was a poor student with no disposable income to speak of and no credit card would approve me (except for the ones for people with 'Bad Credit'). It feels kind of nice to have financial institutions quite literally throwing money at me! :)
posted by moiraine at 2:07 AM on September 22, 2011